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Chile Traders Expect Central Bank to Slow Pace of Interest Rate Cuts

(Bloomberg) -- Chile’s central bank will slow the pace of its interest rate cuts next month according to financial traders, who also raised their forecast for inflation a year ahead.

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Policymakers will lower borrowing costs by 75 basis points to 9.5% in September, after a percentage point cut in July, according to a survey published on Thursday. The key rate will reach 7.75% in December.

Annual inflation is seen slowing to 3.4% in a year’s time, above the 3% target and up from 3.2% in the previous poll.

Chilean central bankers led by Rosanna Costa are poised to extend an easing cycle in one of the region’s richest economies as inflation eases toward its goal. At the same time, the nation’s gross domestic product likely contracted in the second quarter. Elsewhere in Latin America, Brazil and Uruguay are also lowering rates, with Peru tipped as the next country to start cutting.

Policymakers said they may slow the pace of rate cuts, after an initial percentage-point reduction to 10.25%, given that it’s too early to say that inflation woes are resolved, according to the minutes of their July 28 decision.

READ MORE: Chile Minutes Show Future Key Rate Cuts of 75-100 Basis Points

Chile’s peso has depreciated 5.5% in the past month, prompting concern that it may hinder the inflation slowdown by making imports more expensive.

The country’s economy likely shrank by 0.6% during the April-June period, according to analysts surveyed by Bloomberg. Chile’s central bank will publish the official second-quarter GDP data on Friday.

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